Sony's adoption of VHS shows it has learned marketing lessons

Japanese business has a history of winning kudos for its innovation and quality. But innovation and quality do not guarantee success in the rough-and-tumble consumer electronics market, as shown by Monday's announcement by electronic giant Sony Corporation that it is adopting the VHS standard for home videocassette recorders (VCRs). Since it emerged on the Japanese scene in early 1950s, Sony has spent heavily on research and development to keep rolling out new products. One after another, the company hit the market with ground-breaking products, from the Walkman pocket-size stereo tape recorder to the Camcorder hand-held 8-mm video camera recorder.

On Monday, Sony acknowledged the de facto failure of one of its greatest innovations, the Betamax VCR. Its decision to start the production of VHS-formatted VCRs in April ends a 14-year battle against the rival Video Home System (VHS), produced by Matsushita Electronic Company and other competitors.

The decision affects not only VCRs but an entire range of audiovisual products in which Sony has been playing a leading role for decades. ``The most serious effect of the concession may be the image problem Sony will have to face from now on,'' said Hisao Mitarai, an analyst at Nomura Research Institute. This image problem may keep consumers from jumping on Sony's new products.

In addition to the VCR conflict, the company faces a series of problems over standardization despite its efforts to sell innovative products. Its revolutionary Camcorder, for example, has been challenged by archrival Japan Victor Corporation (JVC) with its compact VHS camera, VHS-C, while Sony's television phone was incompatible with one from JVC subsidiary Matsushita.

As the pioneer of VCRs for the home, Sony fought a stubborn battle against the VHS - introduced by JVC in 1976, a year after Sony's Betamax - over which system would become the VCR standard.

The battle did result in dramatic improvements in the quality of VCRs.

``The true beneficiaries of the `video war' are consumers who always enjoyed the latest technologies in their products,'' said Rod Harada, an analyst at Merrill Lynch's Tokyo Office. ``Without such a battle ... the videocassette would not have developed nearly as fast.''

The number of companies following the Beta system gradually declined, however, and so did the worldwide market share of Betamax VCRs, from over 60 percent in 1980 to less than 10 percent today. As the Betamax share fell, Beta users began to face a serious shortage of pre-recorded videotapes. Most video rental shops in the United States, Japan, and Europe carry few if any Beta-format videotapes today.

``As far as quality is concerned, Sony's Beta decks always had the edge over VHS,'' said Mr. Harada. But Sony underestimated the value of marketing, he says.

In the early days of VCRs, for instance, Sony would not give its competitors access to the Beta format. Sony sold only under its own brand name, while Matsushita and JVC sold their units to other Japanese and European makers to increase the VHS market.

Sony's entry into VHS was widely welcomed by experts and consumers. ``The decision was obviously well overdue,'' said Hosomi Mitarai, analyst at Nomura Research Institute. ``The winner in the battle became clear years ago. Sony simply decided to face the reality and got back into the game. VHS users can finally enjoy Sony's advanced technologies.''

Some analysts responded with skepticism to Sony's entry into VHS. ``The VCR market is already saturated, and shares of Japanese VCR makers are being eaten up by Korean makers,'' said Yoshihide Kondo, analyst at Daiwa Securities Company. ``I wonder why it wants to start VHS under such circumstances.''

Though Sony says it will continue to make Betamax VCRs, Beta users have taken the decision as if Sony were abandoning them. ``Many Beta users share the feeling that they are betrayed,'' said Harada. ``Now, consumers worry about whether it is safe to buy 8-mm.''

Sony's 8-mm VCR has gotten into similar conflict with JVC's VHS-C, a compact version of VHS, in the hand-held camera recorder market. Shortly after Sony's sensational introduction of the advanced 8-mm recorder, JVC responded with VHS-C, which does not contain any new technology but is compatible with the VHS system.

Though most major electronics companies, including Matsushita and JVC, have consented to follow Sony's 8-mm format, most VHS-makers are avoiding it out of concern that 8-mm will eat into their VHS sales.

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